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TMI Blog2004 (3) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Bharat V. Patel [ 2003 (11) TMI 30 - GUJARAT HIGH COURT] . Merely because the Assessing Officer has two option for reopening the matter-processed u/s 143(1), non-exercise of option u/s 143(2) to correct the assessment made u/s 143(1) does not exclude Assessing Officer s power to reopen the assessment u/s 147 of the Act, as has been held by the Hon ble A.P. High Court in the case of A. Pusalal [ 1987 (7) TMI 78 - ANDHRA PRADESH HIGH COURT] . Consistent with the view taken by the Hon ble A.P. High Court and also in the light of Explanation 2 to section 147 of the Act, we are of the view that the reopening of assessment is valid in law in the circumstances of the case. We accordingly uphold the order of the CIT(A) on this issue. Nature of compensation received whether it is a capital or revenue receipt - It is not the case of the assessee-company that the assets, which were acquired for manufacture of specific formulations, were completely abandoned. On the contrary, the note by the assessee-company indicates that the assets could not be exploited to its optimum. In fact, the claim for compensation made by the assessee immediately after the termination of the contract shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -9-1999. Subsequently, it was noticed that the company credited an amount of Rs. 87,33,056 to the 'reserves and surplus account' by treating it as capital receipt. The said amount represents compensation received from M/s. Procter & Gamble (I) Ltd., (hereinafter called 'P & G Ltd.'). On 9-12-1999 survey was conducted at the business premises of the assessee-company. It was found, during the course of survey, that the assessee had embarked upon a project for manufacture of certain formulations for M/s. P & G Ltd. Machinery and other equipment were purchased for manufacturing and supplying the formulations on job work basis. However, due to certain reasons, M/s. P & G Ltd., did not go ahead with the job work contract and thus the assessee had to discontinue the project. The assessee-company requested M/s. P & G Ltd., for payment of compensation for the losses suffered by it due to discontinuance of the project. Ultimately, in the year 1997, M/s. P & G Ltd., agreed to pay compensation of a total sum of Rs. 1.08 crores. Though the assessee has declared a sum of Rs. 14,40,944 and Rs. 7 lakhs as income for the assessment year 1998-99, a sum of Rs. 87,33,056 received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction in the year 1995. By cancellation of the agreement, the trading structure of the assessee was not impaired because the assessee continued to supply other formulations, on job work basis, to M/s. P & G Limited and thus the cancellation of the agreement did not result in loss of source of the assessee's business or cessation of business leading to destruction of the source of income. It was also pointed out, in the remand report, that even after termination of agreement the assessee continued to have the physical possession of assets and continued to claim depreciation and interest expenditure on borrowings relatable to the said assets. The assets purchased for the purpose of this project can be used for manufacture or production of formulations for others on job work basis. Therefore, the compensation received by the assessee is not for loss of assets or for destruction of assets but only for loss of profit which the assessee would have earned had the Latin American Project been continued. 6. On consideration of the rival submissions, the learned CIT(A) concluded that the abandonment of the project did not lead to sterilization of assets and the business did not come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot properly appreciated by the tax authorities and a capricious view was taken for the purpose of making the addition. Learned counsel adverted our attention to pages 20, 50 to 55, 195, 203 of the paper book and also page-4 of the assessment order as well as page-10 of the CIT(A)'s order to buttress his contention. 10. The learned counsel submitted that on 15-12-1994 M/s. P & G Limited has entered into an agreement whereby the assessee was to supply certain formulations, on job work basis, at Latin America on behalf of M/s. P & G Limited. On 8th August, 1995 the assessee was advised by M/s. P & G Limited to purchase the following equipment before the end of October, 1995. (i) Shifter (ii) MultiMill (iii) V Cone Blender (iv) Compression Machine 37 stations (v) Neocoata (vi) Blister pack (vii) A/c. However, vide letter dated 10th July, 1996, M/s. P & G Limited directed the assessee to discontinue the project. After considerable negotiations, M/s. P & G Limited, agreed to pay a total sum of Rs.1,08,94,000 in full and final settlement of the compensation out of which Rs. 21,16,944 was offered to tax, by the assessee, as revenue receipt. The learned counsel submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2003] 264 ITR 320 (Uttaranchal). 13. On the other hand, learned DR submitted that the reopening of assessment is valid in law inasmuch as it was not a case of reassessment within the meaning of Explanation 2 to section 147 of the Act. It was submitted that the return of income filed by the assessee was originally processed under section 143(1) of the Act which cannot be equated to 'assessment'. Reliance was placed on the following decisions:- (a) Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173 (Delhi) (b) A. Pusalal v. CIT [1988] 169 ITR 215 (AP) (c) CIT v. Abad Fisheries [2002] 258 ITR 641 (Ker.) (d) Jorawar Singh Baid v. Asstt. CIT [1998] 198 ITR 47 (Cal.) (e) Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 (All.) (f) Punjab Tractors Ltd. v. Joint CIT [2002] 254 ITR 242 (Punj. & Har.) (g) Bharat V. Patel v. Union of India [2004] 134 Taxman 178 (Guj.). It was also submitted that in order to reopen the assessment under section 147 of the Act, it is not necessary for the Assessing Officer to show that he exhausted the remedy of issuing the notice under section 143(2) of the Act for making the regular assessment. His con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 to submit that the entirety of the circumstances should be taken into consideration to appreciate the evidence. Learned DR has also relied upon the following decisions to submit that the impugned amount is a revenue receipt: (1) CIT v. Manna Ramji & Co. [1972] 86 ITR 29 (SC) (2) Blue Star Ltd. v. CIT [1996] 217 ITR 514 (Bom.) (3) Indian Engg. & Commercial Corpn. (P.) Ltd. v. CIT [1994] 205 ITR 1 (Bom.) (4) CIT v. State Trading Corpn. of India Ltd. [2001] 247 ITR 114 (Delhi) (5) CIT v. Manoranjan Pictures Corpn. (P.) Ltd. [1997] 228 ITR 202 (Delhi). With regard to the alternative contention of the assessee, learned DR submitted that Explanation 10 to section 43(1) does not apply to a revenue-receipt. Therefore, learned CIT(A) has not considered ground No. 4 raised before him. He submitted that the compensation amount received by the assessee do not specifically indicate as to what is the amount reimbursed towards a specific asset and thus Explanation 10 would not apply, even otherwise. He has also distinguished the judgment of AP High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has also challenged levy of interest under section 234B of the Act on the strength of the judgment of Hon'ble Uttaranchal High Court in the case of Sedco Forex International Drilling Co. Ltd. It may be noticed that apart from the fact that the decision of Hon'ble Uttaranchal High Court is distinguishable, the Apex Court in the case of CIT v. Anjum M.A. Ghaswala [2001] 252 ITR I held that interest under section 234B is mandatory. No material was furnished before us to indicate as to how interest is not chargeable in this case. Under these circumstances, we reject the ground urged by the assessee. 18. This leaves us with the main issue, i.e., whether the amount of Rs. 87.33 lakhs, received by the assessee is assessable as revenue receipt or has to treated as 'capital receipt'. Whether the particular income arising on termination of contract is a 'capital receipt' or a 'revenue receipt', is a vexed question and the decision depends largely on the facts of each case. In the case of Barium Chemicals Ltd. the jurisdictional High Court at page-180 of its report held as under: "There is no infallible test to draw a clear cut demarcation between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was not permanently deprived of source of income and the compensation represents the profit which the assessee would have earned during the years the premises were under requisition and thus there was no sterlisation and destruction of capital asset. In the case of Durga Prasad More, the Court observed, at page 545 of the report, as under:- "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax." The Court further observed as under: "The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned. Letter dated 25-1-2002 furnished before the ACIT (page-115 of the Paper Book) also indicates that the assessee was in the business of manufacture of pharmaceutical formulations on job work basis to various principals. Merely because a particular contract for job work was terminated, it cannot be said that there is loss of what may be regarded as the source of the assessee's income; it can at best be termed as a normal incidence of the business. 20. It is not the case of the assessee-company that the assets, which were acquired for manufacture of specific formulations, were completely abandoned. On the contrary, the note by the assessee-company indicates that the assets could not be exploited to its optimum. In other words, the assets were neither sold nor discarded but put to use to the extent possible. It is to be noticed that some of the machinery which were mentioned in the letter dated 8th August, 1995 were already available with the assessee prior to the said date. For example, Multi Mill, which was advised to be purchased by the assessee for manufacture of two new formulations, was in fact available with the assessee and purchased on 22-7-1994. Thus, it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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